I beg to communicate to you an important matter which has come before the Department. Morgan Company of New York have asked whether there would be any objection to their making a loan to the French Government and also the Rothschilds -- I suppose that is intended for the French Government. I have conferred with Mr. Lansing and he knows of no legal objection to financing this loan, but I have suggested to him the advisability of presenting to you an aspect of the case which is not legal but I believe to be consistent with our attitude in international matters. It is whether it would be advisable for this Government to take the position that it will not approve of any loan to a belligerent nation. The reasons that I would give in support of this proposition are:

First: Money is the worst of all contrabands because it commands everything else. The question of making loans contraband by international agreement has been discussed, but no action has been taken. I know of nothing that would do more to prevent war than an international agreement that neutral nations would not loan to belligerents. While such an agreement would be of great advantage, could we not by our example hasten the reaching of such an agreement? We are the one great nation which is not involved and our refusal to loan to any belligerent would naturally tend to hasten a conclusion of the war. We are responsible for the use of our influence through example and as we can not tell what we can do until we try, the only way of testing our influence is to set the example and observe its effect. This is the fundamental reason in support of the suggestion submitted.

Second: here is a special and local reason, it seems to me, why this course would be advisable. Mr. Lansing observed in the discussion of the subject that a loan would be taken by those in sympathy with the country in whose behalf the loan was negotiated. If we approved of a loan to France we would not, of course, object to a loan to Great Britain, Germany, Russia, Austria, or to any other country, and if loans were made to these countries our citizens would be divided into two groups, each group loaning money to the country which it favors and this money could not be furnished without expressions of sympathy. These expressions of sympathy are disturbing enough when they do not rest upon pecuniary interests -- they would be still more disturbing if each group was pecuniarily
interested in the success of the nation to whom its members had loaned money.

Third: The powerful financial interests which would be connected with these loans would be tempted to use their influence through the newspapers to support the interests of the Government to which they had loaned because the value of the security would be directly affected by the result of the war. We would thus find our newspapers violently arrayed on one side or the other, each paper supporting a financial group and pecuniary interest. All of this influence would make it all the more difficult for us to maintain neutrality, as our action on various questions that would arise would affect one side or the other and powerful financial interests would be thrown into the balance....

With assurances [etc.]
W. J. Bryan

Secretary of State Bryan to J. P. Morgan and Company:

Department of State,Washington, August 15, 1914

Inquiry having been made as to the attitude of this government in case American bankers are asked to make loans to foreign governments during the war in Europe, the following announcement is made:

There is no reason why loans should not be made to the governments of neutral nations, but in the judgment of this Government, loans by American bankers to any foreign nation which is at war are inconsistent with the true spirit of neutrality.

W. J. Bryan

Vice President of the National City Bank to the Acting Secretary of State:

New York, October 23, 1914

Mr. Counsellor:

Supplementing our conversation of this morning, I desire to call your particular attention to the following conditions now existing in this country and abroad.

The outbreak of the European War came at a time when this country owed a large amount to Europe, particularly to England in the form of short time drafts, maturing between the outbreak of the war and the end of the year. The amount, while large, was not abnormal, considering the volume of our trade relations and was directly due to the anticipated
shipment of cotton during the autumn.

War conditions, as you are aware, have made cotton bills unavailable for the settlement of this balance against us and it can only be wiped out by the shipment of the goods, in lieu of the cotton, that are now needed and desired by the various European countries. This is true, regardless of any temporary bridging over of the situation, and it has been the policy of the National City Bank, as far as possible and proper, to stimulate the unprecedented and unusual buying that is now going on in this country by foreign governments and their nationals. Since the beginning of the war this bank alone has received cabled instructions for the payment of in excess of $50,000,000 for American goods and the volume of this business is increasing. Owing to war conditions, this buying is necessarily for cash and it is of such magnitude that the cash credits of the European governments are being fast depleted. Lately we have been urged by manufacturers who are customers of the bank
and, in some cases, by representatives of the foreign governments, to provide temporary credits for these purchases. For that purpose we have recently arranged to advance the Norwegian Government some three million dollars, practically all of which is to be expended for cereals in this country. Very recently the Russian Government has placed directly, and through agents, large orders with American manufacturers -- such large orders
that their cash credit has been absorbed and they have asked us to allow an overdraft, secured by gold deposited in their state bank, of some five million dollars.

Some of our clients have been asked to take short time Treasury warrants of the French Government in payment for goods and have, in turn, asked us if we could discount them
or purchase warrants direct from the French Government for the purpose of replenishing their cash balances. We have also been asked by European interests practically the same
question as to English Consols and Treasury securities. Some of our German correspondents have approached us with the suggestion that, without naming a particular security, we sell securities to increase their cash account with us, and we have little doubt this is indirectly for the purposes of the German Government.

We strongly feel the necessity of aiding the situation by temporary credits of this sort, otherwise the buying power of these foreign purchasers will dry up and the business will go to Australia, Canada, Argentine and elsewhere. It may in the end come back to us, but the critical time for American finance in our International relations is during the next three or four months and, if we allow these purchases to go elsewhere, we will have neglected our foreign trade at the time of our greatest need and greatest opportunity.

It is the desire of the National City Bank to be absolutely in accord with the policies of our own Government, both in its legal position and in the spirit of its operations and, while very anxious to stimulate our foreign trade, we do not wish to, in any respect, act otherwise than
in complete accord with the policy of our government.

For the purpose of enabling them to make cash payments for American goods, the Bank is disposed to grant short time banking credits to European governments, both belligerent and neutral, and where necessary or desirable replenish their cash balances on this side by the purchase of short time Treasury warrants. Such purchases would necessarily be limited
to the legal capacity of the bank and, as these warrants are bearer warrants without interest, they could not and would not be made the subject of a public issue. These securities could be sold abroad or be readily available as collateral in our foreign loans and would be paid at maturity in dollars or equivalent in foreign exchange.

This business which I have attempted to describe to you, we deem necessary to the general good and we desire to proceed along the lines indicated unless it is objectionable from the Government's standpoint in which case we assume that you will advise us.

Very respectfully yours,
Samuel McRoberts

Secretary of State Lansing to President Wilson:

Washington, September 6, 1915

My Dear Mr. President:

Doubtless Secretary McAdoo has discussed with you the necessity of floating government loans for the belligerent nations, which are purchasing such great quantities of goods in this country, in order to avoid a serious financial situation which will not only affect them but this country as well.

Briefly, the situation, as I understand it, is this: Since December 1st, 1914, to June 30, 1915, our exports have exceeded our imports by nearly a billion dollars, and it is estimated that the excess will be from July 1st to December 1, 1915, a billion and three quarters. Thus for the year 1915 the excess will be approximately two and [a] half billions of dollars.

It is estimated that the European banks have about three and [a] half billions of dollars
in gold in their vaults. To withdraw any considerable amount would disastrously affect the credit of the European nations, and the consequence would be a general state of bankruptcy.

If the European countries cannot find means to pay for the excess of goods sold to them over those purchased from them, they will have to stop buying and our present export trade will shrink proportionately. The result would be restriction of outputs, industrial depression, idle capital and idle labor, numerous failures, financial demoralization, and general unrest and suffering among the laboring classes.

Probably a billion and three quarters of the excess of European purchases can be taken care of by the sale of American securities held in Europe and by the transfer of trade balances of oriental countries, but that will leave three quarters of a billion to be met in some other way. Furthermore even if that is arranged, we will have to face a more serious situation in January, 1916, as the American securities held abroad will have been exhausted.

I believe that Secretary McAdoo is convinced and I agree with him that there is only one means of avoiding this situation which would so seriously affect economic conditions in the country, and that is the flotation of large bond issues by the belligerent governments. Our financial institutions have the money to loan and wish to do so. On account of the great balance of trade in our favor the proceeds of these loans would be expended here. The result would be a maintenance of the credit of the borrowing nations based on their gold reserve, a continuance of our commerce at its present volume and industrial activity with the consequent employment of capital and labor and national prosperity.

The difficulty is -- and this is what Secretary McAdoo came to see me about -- that the Government early in the war announced that it considered "war loans" to be contrary to "the true spirit of neutrality." A declaration to this effect was given to the press about August 15, 1914, by Secretary Bryan. The language is as follows: "In the judgment of this
Government loans by American bankers to any foreign nation at war is inconsistent with the true spirit of neutrality."

In October, 1914, after a conference with you, I gave my "impressions" to certain New York bankers in reference to "credit loans," but the general statement remained unaffected In drafting the letter of January 20, 1915, to Senator Stone I sought to leave out a broad statement and to explain merely the reasons for distinguishing between "general loans and credit loans." However, Mr. Bryan thought it well to repeat the August
declaration and it appears in the first sentence of division 13 of the letter, a copy of which I enclose.

On March 31, 1915, another press statement was given out from the Department which read as follows:

"The State Department has from time to time received information directly or indirectly to the effect that belligerent nations had arranged with Banks in the United States for credits in various sums. While loans to belligerents h ave been disapproved, this Government has not felt that it was justified in interposing objection to the credit arrangements which have been brought to its attention. It has neither approved these nor disapproved -- it has simply taken no action in the premises and expressed no opinion."

Manifestly the Government has committed itself to the policy of discouraging general loans to belligerent governments. The practical reasons for the policy at the time we adopted it were sound, but basing it on the ground that loans are "inconsistent with the true spirit of neutrality" is now a source of embarrassment. This latter ground is as strong
today as it was a year ago, while the practical reasons for discouraging loans have largely disappeared. We have more money than we can use. Popular sympathy has become crystallized in favor of one or another of the belligerents to such an extent that the purchase of bonds would in no way increase the bitterness of partisanship or cause a possibly serious situation.

Now, on the other hand, we are face to face with what appears to be a critical economic situation, which can only be relieved apparently by the investment of American capital in foreign loans to be used in liquidating the enormous balance of trade in favor of
the United States.

Can we afford to let a declaration as to our conception of "the true spirit of neutrality" made in the first days of the war stand in the way of our national interests which seem to be seriously threatened?

If we cannot afford to do this, how are we to explain away the declaration and maintain a semblance of consistency?

My opinion is that we ought to allow the loans to be made for our own good, and I have been seeking some means of harmonizing our policy, so unconditionally announced, with the flotation of general loans. As yet I have found no solution to the problem.

Secretary McAdoo considers that the situation is becoming acute and that something should be done at once to avoid the disastrous results which will follow a continuance of the present policy.